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Greek banks' bad loan reduction in line with target

Greek banks made further progress during this year’s second quarter in reducing their exposure to doubtful and non-performing loans, central bank data showed on Thursday.

So-called non-performing exposures (NPEs) are the biggest challenge facing the sector. At the end of June they had fallen by 4.1 percent from the first quarter to 88.6 billion euros ($103 billion) or 47.6 percent of banks’ overall loan book compared with a target of 90.2 billion euros or 46.9 percent.

Greek banks have been under regulatory pressure to tackle the bad debt problem which restricts their ability to expand credit and help the economy’s recovery.

The country’s debt crisis since 2010 drove unemployment to nearly 28 percent, which stopped many borrowers from servicing their loans and shrank the economy by a quarter.

NPEs comprise restructured loans likely to turn sour and non-performing loans (NPLs), which are credit past due for more than 90 days. Cutting them would free up more capital to fund productive sectors of the economy.

Greek lenders had NPEs totaling 14.5 billion euros ($16.3 billion), or 5.5 percent of loans, when the global financial crisis began in 2008.

While NPEs soared to 106.9 billion or 50.5 percent of loans at the end of June 2016, banks have agreed with ECB regulators to shrink them to 64.6 billion by end-2019, meaning the NPE ratio will fall to 35.2 percent of their books.

The agreed targets are back-loaded, meaning most of the reduction will take place this year and in 2019. Banks are aiming for a 37 percent reduction by December next year.

The reduction in the second quarter was brought about mainly by loan sales of nearly 2.0 billion euros and write-offs of 1.6 billion.

The second quarter also saw collections and liquidations. Default rates picked up to 2.1 percent and were higher than the pace of restoring loans back to performing status (cure rate) of 1.8 percent, the central bank said.

At the end of June, the NPE ratio of mortgages was 44.3 percent, that of consumer loans 56.9 percent with sour business loans at 48 percent. Coverage by loan-loss provisions was 48.6 percent, slightly down from the first quarter’s 49 percent.

Greece’s four major banks – Piraeus, National , Eurobank and Alpha – and three less systemic banks submit data on nine operational targets. [Reuters]